How Much Are Facebook Fans Really Worth?

As brands and businesses of all kinds invest time and money in attracting fans for their Facebook pages, a sinking question has begun to set in: Is there any ROI (return on investment) for building up your Facebook presence? Besides stroking the ego of the CEO or head of marketing, how much is a Facebook fan worth to your business?

Last year, a study of Facebook fan value drew much attention with a tantalizing headline: fans of 20 top brands on Facebook were worth $136 on average. After closer inspection, however, the study was roundly criticized. First, the $136 was actually a measurement of the value of customer loyalty (in additional sales, word of mouth, etc), rather than a measure of how much Facebook had contributed to that loyalty. Second, talking about an average value of customers for 20 different brands (from Oreo to Nokia) made no sense. Averages of this kind are useless; the value of your customer relationships will totally depend on your own business.

So, how should you measure the value of your own Facebook fans? (Or more precisely: the value of connecting to them on Facebook, in addition to all your other channels.) You need to start with the business model of your own company and understand how Facebook relates to it. Are you using Facebook to generate new leads who may become customers? To increase revenue by selling directly within Facebook itself? To drive product trial with Facebook coupons for use in-store?

Following are five steps, you can then take to determine the value and ROI of your own Facebook fans:

1: Determine your customer valuation. How much are your customers worth, in general? Any business should have at least a rough measure of "customer lifetime value" â€" the average value of a customer over time. (A great primer can be found in Sunil Gupta and Donald Lehmann's book "Managing Customers as Investments.")

2. Measure change in that value caused by your Facebook page. The next question is, how much more valuable are your customers due to your efforts on Facebook? Increases in customer value are typically driven by acquisition (getting new customers), retention (getting current customers to remain longer), and expansion (getting them to spend more). Which are you changing with Facebook, and by how much?

3. Measure the cost of your Facebook presence. Contrary to popular assumption, social media is not free. Costs associated with a Facebook fan page include: initial development, licensing third party apps (e.g. for selling within your page), Facebook advertising, and staff to create content and interact each day with fans on the page.

4. Calculate your Facebook ROI. To find out the return on your Facebook investment, simply take the increase in your customer value that is attributable to Facebook, divide it by the costs of your efforts, and subtract 1. So, if Facebook drove a $60,000 increase in customer value this year and cost you $40,000, this means your ROI is .50, or a 50% return on your investment. (If your ROI is negative, you need to change your strategy before spending more money).

5. Compare with efficacy of other channels. Facebook is surely not the only platform you are using to engage with customers and drive customer value. Be sure to compare its ROI with your other efforts: email marketing, blogging, Twitter, LinkedIn, and of course, offline marketing as well.

Let's see how this might work in two very different companies:

SCENARIO A: Mid-Sized Business Services Company
The brand is not well known outside current customers. Every new customer is worth a sizable sum to company. Current customers have already been recruited to Facebook, and the firm is now using paid Facebook ads (pay-per-click) to try to attract more. Trial and error shows that X clicks convert to Y new fans, and Y fans convert to Z customers. What to Measure: the ROI of acquiring new customers this way vs. other marketing spends. What to Optimize: improve the Facebook landing page (to improve your ratio of fans per ad-click, Y:X), and improve your sales funnel for converting Facebook fans into new customers (the ratio of Z:Y).

SCENARIO B: Large Consumer Packaged Goods Brand
The brand is well known. Large data sets and quantitative modeling have shown a link between customer interactions with the brand and purchase volume (e.g. X more interactions with brand triggers Y more sales to that customer). In this case, Facebook is adding value as an additional channel for interactions with existing customers, to drive more sales. What to Measure: the number of interactions, and which content is creating the most response and impressions. What to Optimize: improve the content to optimize interactions, NOT the raw number of fans. What you need is fans who will interact, and content they will interact with, not new fans who never "like," share, or notice the content on your page.

What are your Facebook fans worth? Use your own business model to find the answer for yourself. (And please share your findings in the comments below.)

David Rogers is a consultant, speaker, and author of The Network Is Your Customer: Five Strategies to Thrive in a Digital Age. He teaches Digital Marketing Strategy at Columbia Business School, where he is Executive Director of the Center on Global Brand Leadership. Rogers has advised and developed marketing and digital strategies for numerous companies such as SAP, Eli Lilly, and Visa.